When was the last time you sat down with a professional to evaluate your finances? A few months or years ago? Never? If you chose the latter, you’re not alone. A recent Charles Schwab survey found that only 20% of Americans believe they are financially comfortable. Yet, despite the overwhelming need for one, only 31% say they have a formal financial plan. So, where does this discrepancy come from?
Financial planning can be intimidating, but it allows you to take control of your financial future, avoid common mistakes, and be prepared for life’s uncertainties. With a solid plan, you can make smarter decisions and stay on track to reach your goals.
Regardless of age and income, anyone can benefit from planning. Here’s what you need to know to set yourself up for success this National Financial Planning Month and beyond.
What is financial planning and why should you work with a financial planner?
Simply, financial planning means planning for the future. This could be the near or long-term future, and you might have different objectives based on the time frame and risk you’re comfortable with.
Financial advisors and planners play an important role in this process, helping to manage your investments to achieve your financial goals. We assess your entire financial picture and provide advice in areas such as saving, investing, and retirement planning. Creating a financial plan is a great first step, but to go the extra mile; speak with a financial planning professional to make the most of your money.
Why should you begin financial planning?
As an advisor, I’ve heard several reasons why people put off financial planning, from believing they don’t make enough money to thinking they’re too young to start. Sometimes it just comes down to their exposure to financial planning.
Planning is more crucial now than ever before. Living paycheck to paycheck is not sustainable, and traditional savings and retirement funds are not stretching as far as they once did.
We account for our financial needs in life such as major purchases, bills, and home costs. However, not many people intuitively consider what happens when we need additional care later in life or when unexpected challenges arise. Ultimately, if you want to be able to retire, and live comfortably long past, it is important to start making strategic money moves sooner rather than later.
What are the key steps to financial planning?
- Sit down and write things out. Take time to document your current assets, liabilities, monthly income, and monthly expenses.
- Have an emergency fund. Save six months’ worth of living expenses in an easily accessible account to cover any unexpected expenses.
- Create a budget and begin saving and investing early. Once you know how much you spend on fixed and necessary expenses and you’ve set money aside in an emergency fund, take 30% of your remaining income and invest into your 401k and regular brokerage account. Diversify your investments to allow maximum opportunities for returns.
- Take advantage of employer-sponsored plans. Set up regular monthly contributions to a retirement plan – especially those where employers match contributions and offer tax benefits – and other non-retirement investments such as mutual funds or managed portfolios.
- Plan for taxes. Work with an accountant to take advantage of tax-efficient investing, such as traditional IRAs, Roth IRAs, college savings plans, and HSAs.
- Review and adjust your plan. Your life and goals will change, and so should your plan. Do regular financial check-ups and make changes to stay on track to reach your goals.
Conclusion
Anyone looking to learn more about financial planning can check out resources like the CFP Board website, financial blogs, or talk to a financial planner or advisor. There are many tools available online to get you started. We have a lot of resources on BankWithUnited.com, from helpful articles and calculators to tips for investing and economic snapshots. You can also fill out a form to be connected with a financial advisor who can help you with your needs.